Baird Trims Apple Target but Loves Stock Long Term

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Apple • AAPL-Nasdaq Outperform • Price $110.37 on Dec. 15 by Robert W. Baird & Co. We are modestly lowering iPhone and EPS estimates for the digital-technology developer and retailing giant, to reflect recent supply-chain commentary and conservatism, though we remain positive on the company’s long-term positioning. Importantly, while much of the Street is currently fixated on potential fiscal second quarter (March 2016) guidance, we expect the narrative to quickly shift to iPhone 7 and a potentially stronger upgrade cycle. We continue to view Apple’s overall positioning and valuation as attractive, and reiterate our Outperform rating, but lower our target price from $155 to $150.

The company is trading at 11.8 times our calendar 2015 earnings per share forecast and 11.8 times calendar 2016, multiples that drop to 9.2 times and 8.9 times, respectively, adding back current net cash. Likewise, it’s trading at 10.9 times our calendar 2016 free cash flow forecast.

Today the company guided for 1% to 3% organic sales growth in 2016, and EPS of $8.10 to $8.45. That call, and other industrial updates in the past 24 hours, affirmed our view that the fourth quarter through first quarter would be particularly challenging for the sector, but we had underestimated some of the below-the-line head winds, and the magnitude of the current slump. The analyst event in March will be important in re-establishing management credibility after some missteps this year, but we think it is likely to reaffirm 3M’s ability to raise earnings at a high-single-digit rate despite low-single-digit organic sales growth. We have retained our rating, but we cut our 2016 EPS forecast by 15 cents on Dec. 14, and we will cut forecasts again, given expected shortfalls in sales of more than 200 basis points, or two percentage points, as we exit 2015. However, we think 3M is likely to navigate this downturn better than most peers, helped by its pricing power and ability to expand margins.

Nvidia • NVDA-Nasdaq Buy • Price $33.14 midday on Dec. 15 by MKM Partners The developer of superfast chip circuitry for graphics and other special applications is one of our Top Picks for 2016.

Should there be a recession in 2016, the company has some macroeconomic immunity given its strong balance sheet ($5.99/share) and greater focus on organic growth rather than M&A. The company is willing to “rationalize” disappointing investments (e.g., LTE modems).

Kimco Realty • KIM-NYSE Overweight • Price $25.28 on Dec. 14 by Barclays The real estate investment trust, which specializes in open-air shopping centers, held its first analyst day since 2013. Since then, its portfolio is much improved, as reflected in a slimmer asset base (557 from 816 properties), higher occupancy (95.6% from 92.4%), and stronger ABR, or annualized base rent ($14.31 from $11.66). It has also largely exited from its noncore, non-U.S. assets…

Kimco offered 2016 earnings guidance with a midpoint ($1.58) two cents above its forecast 2015 midpoint of $1.56. We reaffirm our reported 2015 funds from operations per share estimate of $1.57, representing year-over-year growth of 0.5%. We also raise our fiscal 2016 FFO/share to $1.59 from $1.57, and raise our price target to $31 from $29.

SolarCity • SCTY-Nasdaq Buy • Price $40.05 on Dec. 15 by Canaccord Genuity Despite the industrial-chic analyst day setting (on a Tesla corporate stage), investor eyes remain focused on the possibility of a U.S. investment tax-credit extension before Congress is off on its holiday break. Although we see glimmers of optimism from SolarCity and the industry, we’re not willing to assume the ITC extension will come (although we acknowledge that this would be positive for SolarCity and the rest of the industry).

As far as the analyst day data, we come away positive on the company’s impressive operational and cost-cutting goals aimed at making the business cash-flow positive in the near term. But we believe investor sentiment locked on the looming regulatory issues will overshadow long-term goals and continue to weigh on the company’s risk profile and stock price.

Based on that reality, we maintain our Buy rating and $48 price target.

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